Growth often is not the sole culprit when affordable housing
disappears
By Eric Peters
web posted September 9, 2002
Quantity and quality determine the cost (and ultimately,
therefore, the availability) of everything from candy bars to
computers. So why is it surprising that the same factors affect
the price - and therefore availability - of housing? And, just as
wage and price controls never made consumer goods either
more affordable or more abundant, why would the imposition of
marketplace-distorting controls - such as the "smart growth"
polices touted in some quarters - make for better or more
affordable housing?
Such policies don't work - and arguably have the opposite effect
of that intended.1 While real estate and housing prices naturally
tend to move upward in high-growth areas that are perceived as
desirable places to live, it is also true that legislating scarcity via
"slow growth/smart growth" policies that forbid new
development - or which restrict new housing to larger single-
family-type homes - make matters much worse than they would
otherwise have been.
This has been the result of "slow growth/smart growth" policies in
fast-developing areas such as Northern Virginia's Fairfax and
Loudoun counties. In Loudoun County, the problem has been
more extreme due to the unprecedented growth of the past
decade; its population has roughly doubled since 1990, and the
average family income is now almost in the six-figure range.2
"Slow growth/smart growth" policies hurriedly passed by local
politicians to deal with perceived "sprawl" and burgeoning traffic
have merely driven up the cost of existing housing - modestly
priced older homes that four or five years ago were worth $150,
000 now routinely sell for twice that3 - and put a premium on the
land remaining. New construction tends to favor $300,000 and
up "McMansions" - with even townhouses now slipping beyond
the $200,000 range.4
According to government statistics, the average new single-
family home in Fairfax County had a median market value (as of
2000) of $285,577.5 Given annual appreciation in the 10 to 30
percent range, the median value circa 2002 is now well over
$300,000.6
Pre-existing homes in Fairfax and Loudoun often cost
significantly more - because they were typically built on larger
one-half acre or bigger lots, at a time when the county was still
fairly rural and land much cheaper. Today, unimproved land
zoned for residential development in Fairfax and Loudoun
counties can sell for between $75,000 to $120,000 or more,
depending upon the location.7 It has become nearly impossible
to find a serviceable single family home in Fairfax or Loudoun
county for much less than $220,000.8
In both counties, rentals are often just as expensive, or nearly so
- if the measure is the monthly payment. According to county
data, the average rental unit in Fairfax carries a monthly tab of
$1,129;9 Loudoun mirrors this - with $900 and up rents
becoming the norm.10
High average incomes - $95,000 in Fairfax, with 24.3 to 28
percent earning between $100,00 and $149,00011 - make it
possible for most residents to afford the ever-increasing cost of
housing. Modesty is out; nine-foot ceilings and two-story foyers
are in. As Gopal Ahuwalia, research director of the National
Association of Homebuilders puts it: "People want more and
more of everything" - and builders must satisfy that demand. It's
not realistic to expect any developer to under-price new
dwellings, or skimp on materials and features.
However, the downside is that some people - most notably
recent arrivals from foreign countries doing service-industry
work - often have a tough time finding a place to live. To
manage, multiple families, or several individuals, are sharing
homes designed for single families. They're also, in the worst
cases, looking toward the government to provide relief.
The new homes being built in America's suburban areas are
typically larger than pre-existing older homes and have more
features. In the 1950s, a 1,500 square foot home - without
central air conditioning or other conveniences that modern
Americans take for granted - was considered quite adequate;
today, a 1,500 square-foot home is looked upon as "small." The
presence of such new development does tend to drive up the
cost of surrounding real estate - often to the point of making it
uneconomic for developers to build new housing in the
immediate area that isn't at least comparable in type, quality and
square footage.
However, absent restrictions on the use of land beyond the
immediate perimeter of the more expensive new homes, it is
usually still economically viable to build smaller, more affordable
homes - such as townhouse developments or condominiums.
But when zoning and restrictive land-use laws effectively forbid
anything but large homes with three car garages on sizeable lots,
it's easy to see why there is an increasing dearth of more
modestly priced housing in the same geographic area.12
Builders and developers face the same pressures as other
businessmen: They must provide what the market wants - and at
market prices. Erecting 1,500 square foot, $75,000 homes in an
area that increasingly demands 3,000 square foot, $350,000
homes will quickly lead to bankruptcy court. No builder in his
right mind is going to erect "affordable" $120,000 townhouses
on one-quarter acre plots that are worth almost as much by
themselves.
The tag-team of forces - ever-rising expectations about the type
and quality of new housing and ill-conceived, restrictive land use
policies - ultimately determine the cost of both real estate and
rental property. One is natural and self-correcting; the other a
pernicious, artificial distortion of the housing marketplace that
leads to less affordable housing - not more.
Is there a solution? On the one hand, pricing housing below
market values via subsidies or assistance programs will never be
anything more than a stop-gap that will almost of necessity lead
to neglect and perhaps even "suburban slums," as landlords and
tenants lose their property stake, and thus their motivation, to
maintain and improve these under-valued properties. Neither is
it reasonable to imagine that more affordable housing will be
created by injecting artificial scarcity into the real estate market
via restrictive land-use policies that effectively preclude all but
the most expensive "McMansions" from being built.
More government intervention, in a nutshell, is not the solution. If
past experience is any guide, the value of housing cannot outstrip
the capacity of most potential owners to pay for it. That means,
left alone to correct itself naturally, the housing market in fast-
growing areas will in time return to a more natural equilibrium
between cost and ability to pay as things settle out.
The government safety net can be configured to help those who
slip through the cracks - but forcible interference with natural
market mechanisms via "smart growth/slow growth" policies
won't help the majority of those who would be able to make it,
given time, without government interference.
Footnotes:
1 Peter Whoriskey, "Prosperity Feeds Housing Crunch,"
Washington Post, March 17, 2002.
2 "1999 Survey of Loudon Residents: Executive Summary,"
available at
http:
//www.co.loudoun.va.us/pio/docs/survey_/1999surveyoflou/offic
e2k/office 2k.htm on August 26, 2002.
3 "1999 Survey of Loudon Residents: Executive Summary" and
"2001 Rental Housing Complex Census Analysis," available at
http://www.co.fairfax.va.us/comm/demogrph/rentalhs.htm on
August 26, 2002.
4 "International Real Estate Digest," available at
http://www.ired.com/usa/va/; "Summary Facts: Loudon County,
Virginia," available at
http://www.co.loudoun.va.us/business/PDF%20files%20-%
20miscellaneous/summary factsApril2002.pdf; "Greater
Washington DC Web Directory: Home Price Reports," available
at
http://www.onegenesis.com/Real_Estate/Home_Price_Reports/
and "Growth Trends to 2025: Cooperative Forecasting in the
Washington Region," Washington Metropolitan Council of
Governments, Washington, DC, available at
http://www.mwcog.org/hspps/growth2025.html (all available on
August 26, 2002).
5 "2001 Rental Housing Complex Census Analysis."
6 "1999 Survey of Loudon Residents: Executive Summary" and
"2001 Rental Housing Complex Census Analysis."
7 "2001 Rental Housing Complex Census Analysis."
8 "International Real Estate Digest," "Summary Facts: Loudon
County, Virginia," "Greater Washington DC Web Directory:
Home Price Reports." and "Growth Trends to 2025:
Cooperative Forecasting in the Washington Region."
9 "2001 Rental Housing Complex Census Analysis."
10 "1999 Survey of Loudon Residents: Executive Summary."
11 Ibid.
12 Whoriskey.
Eric Peters is a Senior Fellow with The National Center for
Public Policy Research (http://www.nationalcenter.org) and an
editorial writer with The Washington Times. Published with the
kind permission of The National Center for Public Policy
Research.
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